International Accounting Standard (IAS) 38, “Intangible Assets,” provides guidance on the recognition, measurement, and disclosure of intangible assets. IAS 38 applies to all intangible assets, except for certain intangible assets that are specifically excluded from the scope of the standard, such as financial instruments, deferred tax assets, and assets arising from employee benefits.
IAS 38 defines an intangible asset as an identifiable non-monetary asset without physical substance. An intangible asset is identifiable if it is separable, meaning that it can be sold, transferred, licensed, or exchanged separately from the entity’s other assets. An intangible asset is non-monetary if it cannot be measured in terms of money.
Intangible assets are required to be recognized as assets if they meet certain criteria, including the criterion that they are identifiable and meet the definition of an intangible asset. Intangible assets that are recognized as assets are required to be measured at cost less accumulated amortization and accumulated impairment losses, unless they are measured at fair value through profit or loss.
Intangible assets with finite useful lives are required to be amortized over their useful economic lives, which is the period over which the assets are expected to generate economic benefits for the entity. The amortization period should be determined based on the expected pattern of consumption of the economic benefits of the assets, taking into account the nature of the assets and the entity’s expected future use of the assets.
Intangible assets with indefinite useful lives are not amortized, but are required to be tested for impairment at least annually, or more frequently if there are indicators of impairment. The impairment test for intangible assets with indefinite useful lives involves comparing the carrying value of the assets to their recoverable amount. The recoverable amount is the higher of the assets’ fair value less costs to sell and their value in use.
Intangible assets that are measured at fair value through profit or loss are required to be recognized at fair value at the date of acquisition, with any subsequent changes in fair value recognized in profit or loss in the period in which they arise. Intangible assets measured at fair value through profit or loss are not amortized, but are tested for impairment in the same way as intangible assets with indefinite useful lives.
Disclosure of intangible assets is required in the financial statements, including information about the carrying amount, amortization, and impairment of intangible assets. The financial statements should also disclose any relevant assumptions and estimates used in determining the useful lives and impairment of intangible assets.